Higher Ed, Higher Profits

by John Kmiecik | June 11, 2013 2:59 pm

Higher Ed, Higher Profits

Career Education (CECO[1]) has had a turbulent last couple of years. The stock has fallen from around $24 back in July of 2011 to where it is currently trading, around $3. Today we got the news that one of its competitors, Corinthian Colleges (COCO[2]), was recently subpoenaed by the SEC — an issue that has not affected CECO at this point. The company has implemented some changes to the organization, and the new president and CEO is confident they will help both the students and organization.

Click to Enlarge If you believe the CEO, then you might want to take a look at the chart. The stock has been unable to close above its daily 200 simple moving average. It tried in February and quickly reversed and moved lower again. However since the middle of May, the stock has challenged the 200 again and still has not been able to close above the horizontal moving average … but it hasn’t reversed either.

CECO stock is off close to 3% today, possibly in sympathy with the COCO news. A long-call strategy positions you for a snapback in the shares — buy the October 3 calls for $0.55 or less.

The long-call strategy is relatively straightforward. The trade can profit if the stock rises, and the call premium increases as the CECO call option moves more and more in-the-money (ITM). Maximum profit is theoretically unlimited because CECO can continue to rise; the maximum loss is $0.55 if CECO finishes below $3 at October expiration. Breakeven is $3.55 based on a cost of $0.55 at expiration.

If the stock can close above the 200-day moving average, it looks like $4 might be a nice first target. A bearish sign for the stock would be if the stock closed below a support area (previous pivots) at $2.80. An October long call will give this trade idea the time it needs in case education is taken to a higher level.

At the time of publication, Kmiecik had no positions in the securities mentioned.